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SALARY SACRIFICE20104184530

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					ESSSuper Fact Sheet

Salary Sacrifice
for defined benefit members
Who is this fact sheet for?
This fact sheet explains salary sacrifice for ESSSuper defined benefit members who wish to
make their regular member contributions via salary sacrifice.
If you are an ESSSuper defined benefit member and wish to make salary sacrifice contributions
in addition to the regular contributions you make to your fund, please refer to the ESSSuper
Fact Sheet Salary Sacrifice for Accumulation Plan members.

What is ‘Salary Sacrifice’?
‘Salary sacrifice’ contributions are superannuation contributions paid from your salary before Pay
As You Go tax is deducted (i.e. pre-tax instead of after-tax). Effectively, you give up (or sacrifice)
part of your salary and have your employer pay the amount into your superannuation fund.
By sacrificing part of your pre-tax salary, your taxable income is reduced with the result your
personal tax for the year may also be reduced.
There are other impacts from electing to salary sacrifice in place of after-tax contributions. These
impacts and the benefits of salary sacrifice are explained in this leaflet.

How salary sacrifice works
Salary sacrifice contributions are classified as employer contributions and as such, are subject to
15%* contributions tax upon entry. This means that to achieve the same benefit accrual rates
under a salary sacrifice arrangement as from an after tax arrangement, salary sacrifice
contributions need to be grossed up for the 15%* contributions tax.

Benefits of salary sacrifice
Salary sacrifice can be a tax efficient arrangement, lowering your personal income tax and
increasing net ‘take home’ pay. As salary sacrificing contributions does not affect your salary for
superannuation purposes (i.e. your superable salary), the same gross superannuation benefit is
achievable as under an after-tax arrangement.
Example: Adrian earns an annual superable salary of $70,000 and contributes at 7% (after-tax)
to the Scheme (equivalent to 8.3% salary sacrifice contributions). The following information is
based on income tax rates for the 2009/2010 financial year.

                                         After-tax contribution              Salary sacrifice
                                             arrangement                contribution arrangement
 Annual superable salary                         $70,000                          $70,000
 Salary sacrifice contribution
 (8.3% of superable salary)                           Nil                          $5,810
 Taxable salary                                  $70,000                          $64,190
 Tax payable on salary
 (including 1.5% Medicare levy)                  $16,172                          $14,070
 After-tax contribution                                                              Nil
 (7% of superable salary)                         $4,900
 Net take home pay                               $48,928                          $50,120


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By salary sacrificing his 7% member contributions, Adrian’s take home pay increases by $920
per annum, yet his accrual rate for determining his defined benefit ‘benefit multiple’ remains the
same. However, there are other impacts of electing to salary sacrifice in place of after-tax
contributions and whether salary sacrifice is right for you will depend on your particular
circumstances.

What you need to consider
Salary sacrifice can be a tax-effective way of contributing to super because the 15%*
contributions tax deducted is generally much lower than the marginal tax rate you would pay if
you took the same amount as salary.
Other impacts from electing to salary sacrifice in place of after-tax contributions include:

Taxation of concessional contributions
Salary sacrifice contributions are regarded as concessional contributions. Concessional
contributions in excess of $25,000 per annum (or $50,000 per annum if aged 50 or over up to 30
June 2012) will be taxed at the top marginal tax rate plus the Medicare levy. For the purposes of
determining whether the concessional contribution limits are exceeded, salary sacrifice
contributions will be combined with the employer’s notional employer contribution (the rate of
employer contributions theoretically necessary to fund the benefits payable for a defined benefit
fund).

Contributions tax
As discussed above, salary sacrifice contributions are subject to 15% contributions tax whereas
after-tax contributions are not. Contributions tax is deducted when the contributions are paid in.

Taxation of lump sum benefits
Benefits received from a ‘taxed’ fund after age 60 are not taxed. However, salary sacrifice
contributions may be taxable if you withdraw your benefit before age 60 (after-tax contributions
are not taxed when received; only the interest earned is taxed).

Super co-contributions
If your total income (assessable income plus reportable fringe benefits) is $61,920 p.a. or less
for the 2009/10 financial year, you may be eligible for the Super Co-contribution if you make
after-tax contributions to a superannuation fund.
Contributions made by salary sacrifice, however, will not be eligible for a Super Co-contribution.
*   Please note that concessional contributions (employer contributions including salary sacrifice contributions) in
    excess of $25,000 per annum (or $50,000 per annum if aged 50 or over) will be taxed at the top marginal tax rate
    plus Medicare levy.




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Who can salary sacrifice?
To be eligible to salary sacrifice member contributions into the Scheme:
•      the Victorian Minister for Finance has to formally declare the member or group of members
       eligible to ‘salary sacrifice’ their member contributions into the Scheme; and
•      there must be an agreement in place between the employer and employee that allows for
       member contributions by way of salary sacrifice.
The Minister for Finance has declared a number of groups of members to be eligible salary
sacrifice contributors. These groups are listed on our website.
Members who wish to contribute on a salary sacrifice basis should confirm their
eligibility with their employer first.
Any contributions that a member has elected to pay in respect of a period of leave without pay
cannot be made via a salary sacrifice arrangement.

How much pre-tax salary must be salary sacrificed?
The level of contributions you make depends on your membership in ESSSuper.
If you elect to salary sacrifice contributions into the Scheme, legislation requires that the salary
sacrifice option applies to all of the required contributions you make to the Scheme.

ESSS Defined Benefit Fund members
The following table shows the level of pre-tax (salary sacrifice) contribution and the equivalent
post-tax contribution you can make.

            Post-tax                      Equivalent Pre-tax
        Contribution Rate                 Contribution Rate
                3.0%                              3.6%
                5.0%                              5.9%
                6.0%                              7.1%
                7.0%                              8.3%
               8.0%*                             9.5%*
*     available to some members as a ‘catch up’ rate.

For example if you elect to pay 5% of Superannuation Salary from post-tax salary in to the ESSS
Defined Benefit Fund, you would need to pay 5.9% of Superannuation Salary from pre-tax
salary. You are unable to choose to pay part as post-tax contributions and part as salary
sacrifice pre-tax contributions.

New Scheme members
The following table shows the level of pre-tax (salary sacrifice) contribution and the equivalent
post-tax contribution you can make.

    Post-tax Contribution Rate            Equivalent Pre-tax
                                          Contribution Rate
                3.0%                              3.6%
                5.0%                              5.9%
               7.0%*                             8.3%*


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*   only available in limited circumstances.

For example if you elect to pay 5% of Superannuation Salary from post-tax salary in to the New
Scheme, you would need to pay 5.9% of Superannuation Salary from pre-tax salary. You are
unable to choose to pay part as post-tax contributions and part as salary sacrifice pre-tax
contributions.

Revised Scheme members
The following table shows the level of pre-tax (salary sacrifice) contribution and the equivalent
post-tax contribution you can make based on your age.

      Age Last Birthday                       Post-tax                  Equivalent Pre-tax
                                          Contribution Rate             Contribution Rate
              30-39                             8.5%                           10.0%
              40-49                             9.0%                           10.6%
               50+                              9.5%                           11.2%
For example if you are currently required to pay 9.5% of Superannuation Salary from post-tax
salary into the Revised Scheme, you would need to pay 11.2% of Superannuation Salary from
pre-tax salary. You are unable to choose to pay part as post-tax contributions and part as salary
sacrifice pre-tax contributions.


Transport Scheme members
The following table shows the level of pre-tax (salary sacrifice) contribution and the equivalent
post-tax contribution you can make.


          Post-tax                       Equivalent Pre-tax
      Contribution Rate                  Contribution Rate
              2.5%                              3.0%
              5.0%                              5.9%
              7.5%*                            8.9%*
*   only available in limited circumstances.

For example if you elect to pay 5% of Superannuation Salary from post-tax salary in to the
Transport Scheme, you would need to pay 5.9% of Superannuation Salary from pre-tax salary.
You are unable to choose to pay part as post-tax contributions and part as salary sacrifice pre-
tax contributions.

State Employees Retirement Benefits (SERB) Scheme members
SERB members may only contribute 5.0% on a post tax basis or 5.9% on a pre-tax basis to the
Scheme.
For example if you elect to pay 5% of Superannuation Salary from post-tax salary into the SERB
Scheme, you would need to pay 5.9% of Superannuation Salary from pre-tax salary. You are
unable to choose to pay part as post-tax contributions and part as salary sacrifice pre-tax
contributions.




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Is salary sacrifice right for me?
Whether salary sacrifice of contributions is right for you can only be determined after your
personal objectives, financial circumstances and needs have been considered.
The benefits of salary sacrificing contributions will depend on each individual’s circumstances.
Savings on personal income tax tend to be greater in the higher tax brackets and for the higher
contribution rates.
To determine whether salary sacrifice is beneficial to you, we recommend that you seek
independent financial advice.
ESSSuper has partnered with a licensed financial planning organisation to provide you with fee
for services (commission free) financial advice. The financial planners are able to provide you
with a range of services that takes into account your specific financial needs and objectives. For
more information about the financial advice service call our Member Contact Centre.

Can I change my salary sacrifice contribution?
Electing to salary sacrifice your member contributions is independent from electing to change
your contribution rate.
You may only elect to salary sacrifice 100% of your member contributions (i.e. partial salary
sacrifice of member contributions is not permitted).

Electing to make salary sacrifice contributions
Elections to salary sacrifice apply to future contributions.
ESSS Defined Benefit members can elect to commence (or cease) salary sacrifice contributions
once per calendar year.
New, Revised, Transport and SERB Scheme members are able to commence (or cease) salary
sacrifice contributions at any time during the year.

Changing your contribution rate
•     ESSS Defined Benefit Fund members can change contribution rates once per calendar year
      by completing an E120 - Change of Contribution Rate Percentage form available from our
      website at www.esssuper.com.au.
•     New Scheme and Transport Scheme members can choose to increase or decrease their
      amount of contributions as appropriate, or change from pre-tax to post-tax contributions.
      The contribution change periods and effective dates are shown in the following table.


    Name of Scheme                Transport Scheme                New Scheme
    Contribution Change period    1 February - 28 February        1 February - 30 April
                                  OR                              AND
                                  1 August - 31 August            1 August - 31 October
    Effective date of change      1 March                         1 July
                                  (effective for 12 months)
                                                                  AND
                                  OR
                                                                  1 January
                                  1 September
                                  (effective for 12 months)


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•   Revised Scheme members cannot change their contribution rate. It is based on their age.
•   SERB Scheme members cannot change their contribution rate. They can only contribute at
    either 5.0% post-tax or 5.9% pre-tax.

How do I start making salary sacrifice contributions?
Firstly, you need to confirm that:
a) You are in one of the member groups that have already received approval from the Minister
   for Finance; and
b) There is an agreement in place with your employer for you to make Salary Sacrifice
   contributions.
If both these conditions are met, you are eligible to make salary sacrifice contributions.
•   ESSS Defined Benefit Members need to complete an E110 – Salary Sacrifice Form available
    from your Pay Office.
•   New, Revised, Transport and SERB Scheme members can electronically submit the Salary
    Sacrifice Contributions Election Form via our web site www.esssuper.com.au.
    You will need your member number and Personal Identification Number (PIN). If you do not
    have a PIN, your can request one online, or you can call our Member Contact Centre on
    1300 655 476.
    NOTE: DHS employees cannot arrange for salary sacrifice deductions via the process
    outlined above. They must contact their head office to organise the deductions.
    ESSSuper require up to seven days to process your completed forms once they are
    received. Salary sacrifice contributions usually commence from the next available payday
    after your election is processed.

Any questions?
If you have any questions or would like to start making salary sacrifice contributions to
ESSSuper, please call the Member Contact Centre. ESSS Defined Benefit members should call
1300 650 161 and New, Revised, Transport and SERB Scheme members should call 1300 655
476.




The information contained in this Fact Sheet is of a general nature and is not intended to be and is not a complete or
definitive statement of all matters outlined in it. The information should not be construed in any way as investment or
financial advice. ESSSuper does not recommend that any member make decisions based solely on this publication.

                                                                                       Prepared December 2009



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